How To Find Money For Your Business

Financing can be a confusing and ominous task. You can increase your financing opportunities by understanding the many different ways that you can source funding for your business. Equally important is the criteria that lenders and investors use for the approval bankof loans and credit. Find out what you must know along with some great resources for lending options.

The biggest mistake we can make when approaching lending institutions is to be unprepared to answer their questions and meet their requirements.

1. It is important borrowers realize that no matter how long you have been in business or the quality of credit performance your company demonstrates, lending institutions are going to want some "skin on the table".

In other words, you'll need to consider what assets you have to offer such as collateral mortgages, term deposits, personal guarantees etc. and what you are prepared to pledge.

2. Equally important is understanding the performance ratios that lending institutions use to govern their lending approvals.They will look at your Liquidity Ratio, which includes your current ratio and quick or acid test ratio.This is a measure of the company's ability to pay current liabilities.

3. Next they will look at the company's Tangible Net Worth, which defines the physical net worth of the company. While this may vary with different lending institutions, Tangible is the key word.

They will typically exclude Goodwill from assets since this can only be realized upon the sale of the business and in itself has an intangible value. They may on the other hand include shareholders loans to the net worth value if they are not subordinate (pledged by contract to another lender).

4. The ratio that probably carries the most weight is your Debt to Equity ratio. This is your total liabilities divided by your tangible net worth. Again this will vary with different lending institutions but the lower the ratio the better the picture with a 1:1 ratio being very good. This simply demonstrates how much investment shareholders have in the company vs. the amount of money owed to creditors.

Other areas of importance include profitability and the company's 3 to 5 year financial trends. If you need to finance a property, acquire or increase an operating line of credit, renew credit lines with your suppliers and/or finance company, make sure you are prepared to answer these questions.

If you have weak areas in your business, outline your strategies for improving your company's financial picture. Do not walk into your lending institution with just a written review of you advertising strategies, customer demographics and plan to compete in your market place. This is considered to be "fluff" and only has value if included in the goals and objectives of a full Financial Business Plan.

Your ace in the hole when negotiating financing and interest rates is a comprehensive Financial Business Plan that answers these questions and demonstrates your ability to effectively manage your business to success for the next year.

If you need help formulating your business or negotiating plan for your financial institutions, contact me.

Check out these web sites for alternative financing opportunities that may be available to you:

Government Financing

http://www.canadabusiness.ca/eng/guide/1151/

Government departments and agencies provide financing such as grants and contributions, subsidies and loan guarantees.

Private Sector Financing

http://www.canadabusiness.ca/eng/guide/1167/

Your business may be eligible for a wide variety of different types of private sector financing, including debt and equity.

Personal Assets

http://www.canadabusiness.ca/eng/guide/1173/

Most new entrepreneurs will use some of their own assets to get the business off the ground.

Financing for Specific Demographic Groups

http://www.canadabusiness.ca/eng/guide/1513/

Find out what financing is available for specific demographic groups, including Aboriginal peoples, immigrants, persons with disabilities, women and youth.

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